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Speaker 1: Welcome to Fear and Greed Q and A, where we

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Speaker 1: ask and answer questions about business, investing, economics, politics and more.

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Speaker 1: I'm Michael Thompson and every Monday morning we are joined

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Speaker 1: by economist Stephen Coucoulis to look at the weak ahead.

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Speaker 1: You will find him at the kook dot com. That's

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Speaker 1: t g kouk dot com and on X using the

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Speaker 1: handle of the Kok Stephen, Good morning.

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Speaker 2: Good morning Michael.

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Speaker 1: Now Stephen, I just said that the purpose of this

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Speaker 1: chat is to look at the weak ahead, and really

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Speaker 1: it's a pretty quiet week coming up from the for

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Speaker 1: the economy, but last week was an absolute cracker. So

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Speaker 1: I thought we might take a look back and see

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Speaker 1: what we now know this morning about the economy that

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Speaker 1: we didn't know this time last week when we last spoke.

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Speaker 1: Good idea GDP was probably the headline last week. It

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Speaker 1: was an increase. It rose zero point six percent in

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Speaker 1: the dune quarter one point eight percent over the year.

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Speaker 1: This was bit higher than what a lot of economists

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Speaker 1: were expecting, right.

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Speaker 2: Yeah, a touch higher. And the surprise, if we can

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Speaker 2: call it that, on why that growth was a little

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Speaker 2: more encouraging was linked mainly to household spending. And so

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Speaker 2: what we're seeing, I think, in these GDP figures, and

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Speaker 2: that is a gentle recovery, is that we consumers who

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Speaker 2: were more than half of the economy, your household spending

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Speaker 2: is more than fifty percent of GDP. We're benefiting from

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Speaker 2: rising real wages, So wages are now increasing by more

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Speaker 2: than the rate of inflation. And while we've still a

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Speaker 2: long way to go to catch up to where we

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Speaker 2: were three or four years ago, at least we can

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Speaker 2: hear a sigh of relief coming through from the consumer side.

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Speaker 2: There's been the interest rate cuts, and of course they're

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Speaker 2: still playing out that the first one happened in February,

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Speaker 2: and that's probably having a little bit of an impact

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Speaker 2: on consumers spending. And so these GDP numbers were showing

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Speaker 2: that annual growth, as you mentioned, one point eight percent,

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Speaker 2: was the strongest in about two and a half years.

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Speaker 2: So again we're not quite at that level where we're thinking, great,

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Speaker 2: we're doing well. One point eight percent GDP is still

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Speaker 2: pretty subdued, but the trend, the turning point is coming through.

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Speaker 1: Okay, you talk obviously about household spending being the key

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Speaker 1: driver there, and we saw that then being reinforced on

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Speaker 1: Thursday when we had the household spending data come through

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Speaker 1: for July, which again showed that increase.

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Speaker 2: Yeah, indeed, because that was the June quarter GDP numbers

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Speaker 2: that we were just talking about. So we get the

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Speaker 2: monthly update on household spending and again another plus point

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Speaker 2: five percent, sort of bang on market expectations. But again

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Speaker 2: the annual rate of growth is now five point one percent,

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Speaker 2: well above the inflation rate. So there's this increase coming

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Speaker 2: in consumer spending into July, so the first month of

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Speaker 2: the September quarter. So again that encouraging years. We saw

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Speaker 2: consumer sentiment tracking higher the last couple of months that

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Speaker 2: maybe maybe that cautious optimism that we were talking about

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Speaker 2: a few weeks ago is still coming through and still

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Speaker 2: showing up in the hard data.

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Speaker 1: One of the points that I saw in that data

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Speaker 1: was that spending on non essentials is starting to rise.

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Speaker 1: How significant is that that all of a sudden people

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Speaker 1: are finding a little bit of extra cash and willing

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Speaker 1: to go out and spend it on something that they

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Speaker 1: don't necessarily need.

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Speaker 2: Really important point that the essential spending, even through these

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Speaker 2: hard economic times, the cost of living crisis, of course,

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Speaker 2: almost by definition, essential spending was resident we have to

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Speaker 2: pay our rates, we have to pay our rent, we

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Speaker 2: have to pay for insurance and these sort of things.

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Speaker 2: But discretionory spending, holidays and cafes and restaurants and these

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Speaker 2: sorts of things was the area of consumer spending that

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Speaker 2: was weak that's now picking up. So we again greinforces

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Speaker 2: that earlier point. The consumer sentiments also high when we're

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Speaker 2: feeling optimistic, when we're feeling better, and we actually do

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Speaker 2: notice a little bit of a difference in our bank

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Speaker 2: balance that we do tend to spend more on nie

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Speaker 2: to do things. And I might just throw in there

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Speaker 2: also that the fact that, well, oh gosh, we've had

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Speaker 2: incredible volatiley in the share market, but generally the ax

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Speaker 2: is higher than it was previously. House prices are still increasing,

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Speaker 2: so there's a wealth effect. And when we feel wealthy

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Speaker 2: as a nation. Now not everybody's got a house to

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Speaker 2: enjoy that benefit, or some people have got a lot

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Speaker 2: of their money tied up in super but when we

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Speaker 2: feel wealthy, we tend to spend more. So all of

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Speaker 2: the stars are coming into play that a rising stock market,

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Speaker 2: rising house prices, rising real wages are feeding into the

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Speaker 2: consumer coming back.

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Speaker 1: Okay, I want to talk to you then about interest rates.

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Speaker 1: And we've talked obviously about GDP being slightly higher than expected,

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Speaker 1: really positive household spending figures, a lot more optimism. The

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Speaker 1: economy is growing, yes, still sluggish. Does this make it

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Speaker 1: less likely than that we're going to see more rate cuts?

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Speaker 1: And we did hear from Reserve Bank Governor Michelle Bullock

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Speaker 1: last week, and she's sounding more confident now as well.

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Speaker 2: She did, even though her set piece speech was more

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Speaker 2: about technology and AI and how the economy and the bank,

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Speaker 2: the Reserve Bank is going to be coping with these things.

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Speaker 2: There was a Q and eight at the end of it,

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Speaker 2: and of course some cheeky person asked her about the

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Speaker 2: economy and interest rates, and she gave a very frank answer,

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Speaker 2: and again in normal Reserve Bank cautious talk, she was

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Speaker 2: saying that, yes, the economy is looking a little bit better,

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Speaker 2: and while she's not ruling anything in or out, she

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Speaker 2: said that if the economy continues to maintain this momentum,

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Speaker 2: so if we get the next two or three or

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Speaker 2: four months of housing numbers being stronger and GDP recovering

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Speaker 2: and the like, then maybe, just maybe we don't need

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Speaker 2: too many more interest rate cuts, and certainly that was

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Speaker 2: reflected in the money markets, where a week or so

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Speaker 2: ago we had basically three interrastraight cuts priced in by

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Speaker 2: the middle of twenty twenty six, now it's only about

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Speaker 2: one and three quarters a rate cuts priced in. So

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Speaker 2: we've had a big move in the money markets, and

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Speaker 2: Michelle Bullock's didn't shy away from that pricing.

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Speaker 1: Got I ask you, this is a question completely without notice.

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Speaker 1: This is something that came up last week. Migration was

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Speaker 1: a big topic of discussion last week. Obviously a week

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Speaker 1: and a half ago now we had big rallies protests

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Speaker 1: around the country, basically anti immigration protests. We did then

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Speaker 1: have the government come out through the week and confirm

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Speaker 1: the intake numbers for this year. I think it was

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Speaker 1: one hundred and eighty five thousand permanent Visas you talked

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Speaker 1: before about the jobs market still being tight in a nutshell,

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Speaker 1: how important is migration, How important is it for us

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Speaker 1: to be bringing in skilled workers in order to help

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Speaker 1: fill those gaps in the jobs market?

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Speaker 2: Really hot topic and it does tend to spill over

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Speaker 2: again as we saw in the demonstrations and rallies and whatnot.

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Speaker 2: That there's some ugly scenes that come up on social issues,

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Speaker 2: you racism and those sorts of horble things. But isn't

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Speaker 2: a economists. Immigration is a really important part of the economy.

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Speaker 2: But like so many things in economics, you can have

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Speaker 2: too much too quickly. And I think what we saw

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Speaker 2: in the immediate aftermath of the pandemic and the reopening

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Speaker 2: of the borders was basically a million people came in

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Speaker 2: in a very short period of time and created a

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Speaker 2: lot of pressure on housing rents and these sorts of things.

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Speaker 2: And now it's coming back, as you know that the

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Speaker 2: government's sort of aiming for about one hundred and eighty

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Speaker 2: five thousand, and that is back to sort of where

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Speaker 2: we were pre pandemic when we allow for other forms

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Speaker 2: of migration, natural population increase, these sorts of things, that

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Speaker 2: we're going back to where we were pre pandemic. So

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Speaker 2: in a sense, that level is an optimal amount. The

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Speaker 2: government is trying desperately to make sure that the bulk

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Speaker 2: of the new immigrants have the skills that we need

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Speaker 2: for the labor market. And again, even though down to

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Speaker 2: ploint rate has crept up, there are still shortages of

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Speaker 2: labor in building and construction another pet project of the government.

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Speaker 2: They want to build lots more houses over the next

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Speaker 2: few years and you need lots of tradees to do

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Speaker 2: that and we don't have enough. So yeah, the migration,

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Speaker 2: it's not just the raw number that matters, but it

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Speaker 2: and we're lucky in Australia that we can pick and

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Speaker 2: choose a little bit who we have come into the economy.

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Speaker 2: If we can pick and choose those with the skills

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Speaker 2: that we need, it actually helps the labor market and

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Speaker 2: helps the economy to sustain. And dare I mention the

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Speaker 2: word productivity, but it actually helps productivity as well. Get

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Speaker 2: if we're importing, you know, young skilled workers into the economy.

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Speaker 2: Whack oh, we're getting a bit of a free kick

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Speaker 2: from that.

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Speaker 1: All right. We do have a quieter week coming up

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Speaker 1: for the economy, but we almost need the week just

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Speaker 1: to take a breather after last week. Thank you very much,

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Speaker 1: have a great week.

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Speaker 2: Thank you, Michael.

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Speaker 1: That was economys Stephen could cool Us, better known as

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Speaker 1: the Kook. You can find him at the kook dot

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Speaker 1: com and follow him on x using the handle of

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Speaker 1: the kuk Michael Thompson And this is Deer and greed

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Speaker 1: q and a